An economic theory must be judged by its incentives

Socialism gets rebranded every generation. New faces, a new hashtag and a catchy slogan, but the pitch stays the same: This time will be different. It never is, because socialism’s problem isn’t bad luck or bad leadership. It’s just a bad idea, according to the Tribune News Service.

Socialism assumes that government planners can determine what millions of people need better than individuals, families and businesses can determine it for themselves. History offers little reason to believe that assumption.

Prices communicate scarcity. Profits reward businesses that create value. Competition pressures producers to improve quality, control costs and respond to consumers. When governments suppress those signals and replace them with political directives, shortages and stagnation inevitably follow. Consider Venezuela. In the 1950s, it ranked fourth globally for per-capita GDP. As recently as the 1980s it ranked in the top 25. Then, socialist leaders Hugo Chávez and Nicolás Maduro nationalized industries, seized private businesses, and imposed sweeping price and currency controls.

The result? Under Maduro, economic output fell by more than two-thirds. At the height of the crisis, a leading national survey found that 96 percent of Venezuelan households were living in poverty.

A country with some of the world’s largest oil reserves could not reliably keep its lights on or its stores stocked. That’s not bad luck. That’s a very bad idea — socialism — in action.

Cuba offers another warning. Once the gem of the Caribbean, a 2026 study in the Journal of Development Economics concluded that Cuba’s economic performance deteriorated sharply after the 1959 revolution and that the loss of Soviet subsidies exposed the depth of that weakness.

The Soviet Union provides the clearest example of central planning’s inability to coordinate a complex economy. In 1990, bread disappeared from Moscow stores despite a record grain harvest. The problem was not a lack of wheat. It was a decaying system that could not reliably transport, process and distribute food.

By the first quarter of 1991, Soviet gross national product was 8% lower than it had been a year earlier, with declines spreading through nearly every part of the economy. Central planners could issue production targets, but they could not reproduce the information, incentives and coordination generated by markets.

Defenders of socialism often respond that these examples were not “real socialism.” The theory was sound, they say; only the execution failed.

However, execution is the point. An economic theory must be judged not only by its promises but also by the institutions and incentives it creates. Concentrating economic power in government repeatedly produces political allocation, weak accountability and resistance to correction. When failure comes, officials rarely surrender authority. They demand more of it.

The United States chose a different model. It protected private property, encouraged entrepreneurship and generally relied on markets to allocate capital and labor. The government established rules, funded basic research and built public infrastructure, but it did not replace the private sector as the economy’s principal engine.

That combination helped produce extraordinary prosperity and innovation. According to the National Science Foundation, US knowledge- and technology-intensive industries generated $3.3 trillion in value in 2024, accounting for 11% of the nation’s gross domestic product.

The impulse to transfer more economic power to government has not disappeared.

California voters will consider a measure this year imposing a one-time “wealth tax” allowing the state to seize up to 5% on assets exceeding $1 billion. Washington state has enacted a 9.9% tax on income exceeding a $1 million deduction, effective in 2028. Michigan’s Democratic nominee for US Senate, Abdul El-Sayed, won his primary while supporting a Medicare for All and higher taxes to finance expanded government benefits.